Monday, May 6, 2013

May 6 (1874) "There were four or five different kinds of money in circulation..."

Western Union Messengers. The stock dropped 2.2% on May 6, 1874, on reports of continued economic weakness.

News reports on this day in 1874 announced "Financial Depression" and a raging battle between bulls and bears on Wall Street, with the "Great Bears" winning. The New York Tribune reported that prices were only "a little above panic figures of last autumn", referring to the Panic of 1873, what would come to be known as the "Long Depression."

Set-off by the bankruptcy of Jay Cooke and Company in September 1873, the panic engulfed 25% of the nation's railroad companies, then the largest non-agricultural employer, as well as 18,000 businesses and hundreds of banks. At its zenith in 1876, unemployment reached 14%. The nation wouldn't start recovering until 1879.

An article in the New York Times in 1907, sought to better understand the causes of the panic of that year by better understanding 1873's depression . "The Panic of 1873 came hard upon the heels of a time of tremendous industrial activity in the country over. As the Nation emerged from the civil war and 'got its breath', as it were, after the great struggle, it leaped into the task of upbuilding which had been temporarily abandoned in the four years preceding.

"It was an era of all sorts paper money so that the credits that were built up had no definite currency basis. The result was an enormous transfer of capital from liquid into permanent or fixed form...In lieu of liquid assets more money was borrowed to extend the process even further."

Remembering the Panic of 1873, a Wall Street Man recalled "there were four or five different kinds of money in circulation, each with a different value and the man who had the depreciated paper didn't want to have his neighbor lay in gold, no matter how much that strengthened the general situation."

The New York Times concluded that "there is probably no stronger argument for a sound currency basis than the comparison this afforded between the panics of 1873 and 1907." It would take another six years before such a currency was formed by the Federal Reserve Act of 1913.